Assigned to FIR & APPROP FOR CAUCUS & FLOOR ACTION

ARIZONA STATE SENATE

Phoenix, Arizona

REVISED FACT SHEET FOR H.B. 2633
captive insurance (NOW: captive insurance committee)

Purpose

Establishes the Joint Legislative Study Committee on Captive Insurance (Committee).

Background

In the normal course of transacting business, corporations undertake to protect themselves from the various types of risks to which they are exposed. Typically corporations contract with independent insurers to handle their coverage needs, but in certain instances a corporation, a non-insurance organization or a group of companies may establish an insurance company for the purpose of underwriting their own insurance risks. A "captive insurance company" is one owned and controlled by its policyholders; it is an arrangement by which a corporation or organization finances deliberate retained risk. This form of insurance affords such corporations, organizations or groups the flexibility to tailor coverage to their specific needs, minimize the cost of the retained risk, utilize beneficial tax rules and reduce administrative burdens for matters such as the processing of claims.

There are approximately 4000 "captives" worldwide domiciled in places such as Bermuda, Ireland, Luxembourg, the Cayman Islands, Guam and British Columbia. Beginning in the 1980's several states (including Vermont, Hawaii, New York and Colorado) passed captive insurance legislation. Currently, there are no captive insurance companies in Arizona. Proponents of this bill assert that such companies boost economic development through the generation of premium tax revenues, booking of meeting facilities, and hiring of in-state professionals.

There is no fiscal impact to the general fund associated with H.B. 2633.

Provisions

1. Establishes the nine-member Joint Legislative Study Committee on Captive Insurance (Committee) and designates members.

2. Specifies Committee members do not receive compensation but are eligible for reimbursement of expenses.

3. Defines captive insurance.

4. Requires the Committee to hold at least two public hearings.

FACT SHEET H.B. 2633 - Revised Page

5. Requires the Committee to review and analyze issues pertaining to captive insurance, such as:

Current statutes, rules and legislation in other states and countries.

Feasibility and economic impact to this state of establishing such companies.

Economic impact in the states and countries that have encouraged their establishment.

Role of state regulation.

Reasons for forming such a company and the various company structures that may be adopted and types of coverage it may insure.

Factors relating to forming a company such as capitalization, assessments and costs, access to reinsurance, investment limitations and tax implications.

6. Requires the Committee to submit a report of its analyses, findings and recommendations on or before November 15 to the Speaker, the President, the Governor, the Secretary of State and the Director of the Department of Library, Archives and Public Records.

7. Contains a delayed repeal date from and after December 31, 1999.

Amendments Adopted by Committee

1. Made technical changes.

House Action Senate Action

GOVREF 2/19/99 DPA 5-0-0-1-0 FIR 3/24/99 DPA 6-1-0

3rd Read 3/11/99 39-17-4-0

Prepared by Senate Staff

June 11, 1999

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